The options available to restaurant and hotel owners to fund their visions of growing their businesses are ever-changing. In today’s market, there are many options available and each one has its own advantages and disadvantages. Although a lot of the options below have been available for a long time, due to higher interest rates, they are not as appealing as they once were.
Some of the most common options to secure funding for an expansion are:
Self-funding or private investment: This is the best way to get investment for restaurant and hospitality businesses if you have your own money or can find investors who are willing to support your vision. You will have full control over your business and avoid paying interest or fees. However, this option requires a lot of capital and may limit your growth potential if you run out of funds.
Partnerships: Another way to fund a restaurant and hospitality business is to partner with someone who can provide capital, experience, or resources that complement your own. You can share the risks and rewards of running a hospitality business, as well as leverage each other's network and reputation. However, partnerships also involve sharing decision-making power and profits, which may lead to conflicts or disagreements.
Bank loans: Bank loans are a traditional source of financing for restaurants and hospitality businesses that have a solid track record and a strong business plan. You can borrow money from a bank or other financial institution and pay it back over time with interest. Bank loans can offer lower interest rates and longer repayment terms than other options, but they also require collateral, guarantees, and strict eligibility criteria.
Venture capital funding: Venture capital funding is a form of equity financing that involves selling a stake in your hospitality business to investors who expect high returns and growth potential. You can access large amounts of capital and benefit from the expertise and connections of your investors. However, venture capital funding also means giving up some ownership and control over your business, as well as meeting high expectations and performance targets.
Revenue-based financing: Revenue-based financing allows restaurants and hospitality businesses to borrow money based on their future sales and pay back a percentage of their revenue over time. Typically, the percentage is a multiple of the principal loan and usually ranges between three to five times the original amount borrowed. The benefit of this model is there is no interest to be paid on an outstanding balance, there are no fixed payments, and you retain ownership of your business. This option requires a strong business plan that provides assurances for healthy returns.
Crowdfunding: Crowdfunding is a way of raising money from the public through online platforms that allow you to showcase your restaurant idea and solicit donations or pre-orders from potential customers or supporters. You can generate buzz and awareness for your restaurant, as well as test the market demand and feedback. However, crowdfunding also requires a lot of marketing and promotion efforts, as well as fulfilling your promises and obligations to your backers.
Specialty “green” financing: Local government grants and low interest financing may be available to help owners that are looking to convert properties to environmental, social, and governance (ESG) conscious properties. Eco-tourism and ESG matters are hot topics in the industry, and one that consumers are looking at closely. Numerous local and national programs are available to those who are candidates.
Local associations: Local associations are organizations that support the development and growth of restaurants and hotels in a specific area or community. They may offer grants, loans, mentoring, training, or networking opportunities for hospitality owners who meet their criteria and goals. You can benefit from the local knowledge and resources of these associations, as well as contribute to the social and economic well-being of your area. They also may know the best financing strategies or local banks to call.
Citrin Cooperman’s Restaurants and Hospitality Industry Practice is well equipped to help your business identify opportunities and develop strategies for funding a successful expansion. For more information, please contact Jennifer Hogencamp at firstname.lastname@example.org or your Citrin Cooperman advisor.
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